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Jim Knight: I wholeheartedly agree with my hon. Friend. Does he agree that such is the strength of the SDR process that our armed forces are very well placed in terms of projection overseas and certainly in comparison with most of our NATO partners? In many ways it is a shame that our homeland security and our civil response to the new security threat are not as well placed as our armed forces are following the SDR process.

Mr. Smith: I entirely agree with my hon. Friend. I am sure that we will revisit that issue during tomorrow's statement. I have to hand it to the Defence Committee, which warned of such an attack happening long before 11 September. However, we must be careful and distinguish between what we can realistically do to prevent such attacks and what we can do to manage their consequences. There is a difference between what we can realistically do and what we are seen to be doing. I am more interested in reshaping the footprint of British defence forces so that they can more readily identify with regions, local authorities and civil authorities—the police and fire services—and prevent something from happening or respond after it has happened. We would do far better to look at that use of our resources than to create a huge new force like the Territorial Army. Frankly, between 1989 and 1997, the territorials were not quite sure what job they had to do.

Mr. Francois: As a former Territorial Army officer, I should like to respond to the hon. Gentleman's remarks. Rather a lot of Territorial Army soldiers knew exactly what they had to do. They did not need their numbers slashed and the infantry battalions did not need their back broken by a Labour Government.

Mr. Smith: The hon. Gentleman refers to the infantry battalions, the cap badges and the tradition. By and large, it is harder for Tories to take those tough decisions about reforming our military.

The hon. Gentleman is right—it was an error on my part to say that all the territorials had nothing to do. That was nonsense. They occupied key positions in some of the world's trouble spots, including Bosnia. However, the majority were effectively cannon fodder for a non-existent enemy. That was the reality.

Mr. Ian Liddell-Grainger (Bridgwater): I am also a former officer in the Territorial Army. I was in the Fusiliers, a northern regiment. I sat on a bridge on the River Weser month after month watching for Russian tanks. They may or may not have come, but we knew precisely what we were there to do and we knew how to do it. I hope that the hon. Gentleman appreciates that

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Territorial Army soldiers did a job for all those years and that they continue to do a job by serving around the world with the regulars.

Mr. Smith: When the red army existed intact, that was an incredibly important and worthwhile job. Now that the red army has collapsed and could not possibly present a realistic threat in the next two or three decades, even if they started building up now, the job no longer exists. I am not casting aspersions on the role played by the territorials. However, the challenge in the SDR was to find them a realistic role for the future. Nobody wanted the territorials to have a valued and important role in the new defence structures, facing new and unpredictable enemies, more than they did.

Mr. Francois: We have to thank the hon. Gentleman for recanting part of what he said earlier.

Mr. Smith: If I gave that impression.

Mr. Francois: He did, and we have acknowledged that. However, part of the debate about the Territorial Army is how it could carry out an operational role in home defence in the aftermath of 11 September. We hope that that will be addressed in the new chapter of the SDR. These are very important issues. I thank the hon. Gentleman for withdrawing his remarks but ask him to think more carefully about what he says.

Mr. Smith: I am not withdrawing what I said—I want that on the record. My point did not appear to be made clearly enough. I am making exactly the same point, and I agree with the hon. Gentleman on future homeland defence requirements. However, there is no doubt that the traditional role of the Territorial Army has changed. There may be slight disagreement between the hon. Members for Rayleigh (Mr. Francois) and for Bridgwater (Mr. Liddell-Grainger) and me because I am an ex-regular and they are ex-territorials. That could account for our differences.

I want to focus on the Government's extremely innovative policies in the Defence Logistics Organisation. As I said earlier, that represents one of the biggest challenges because it has the biggest budget and the greatest potential for cost savings so that money can be spent where we need it—on the front line.

In his opening speech, my right hon. Friend the Minister of State for Defence referred to private finance initiatives and partnership agreements. That is exactly the right way to go forward. The difference between the Labour Government and the previous Conservative Government is that we are not Treasury-led and, most important, we are not ideologically led. We are looking for the most efficient output and the best way of delivering services—whether public, private or a combination of both. That is exactly what we should be doing. Other countries are doing that, especially the United States. We can learn lessons from their experience.

My right hon. Friend did not refer to the creation of the Defence Aviation Repair Agency, an innovative concept which was set up in 1999 to be given trading fund status as a wholly owned subsidiary of the Defence Logistics Organisation. The agency received that status on 1 April last year and by 1 April 2004 it will have a turnover of

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about £500,000 million. It will have a huge work force and will provide a one-stop shop for the entire deep repair and maintenance of almost all our military aircraft. In about two years, the agency will be a commercial organisation. It will receive money not from the defence vote but from clients who buy in its services. That was a courageous move for the Government and it is one of the ways forward.

The project provides the surge capacity referred to earlier, but without complete dependency on the private sector. It also gives the Ministry of Defence another option if it wants to buy in services other than from private companies. God forbid that a private company should have the monopoly for the supply of those services. If that were so, I agree with my right hon. Friend that we should be in serious trouble.

The agency offers several advantages. Although I have not offered uncritical support for some of the developments in that organisation, it has made enormous progress during the past two years. It has completely restructured the work force and removed whole tiers of management. It has changed the terms and conditions of employment and working practices. It has had to deal with unexpected reductions in demand, when it was not awarded contracts that it expected to receive. There have been unexpected cuts in DLO expenditure of which there was little or no notice.

We have already discussed the Sea Harrier, but one aspect of that debate was not covered: the impact of withdrawing the aircraft earlier than planned on the supply line that services them and on the jobs and skills base that are dependent on such work and that are vital to our future military provision. The agency is preparing to adjust to that.

As I noted, the agency was set up in April 1999; it was awarded trading fund status in April 2001 and will be a fully commercial organisation by April 2004, although it will still be owned by the Ministry of Defence. There are four sites in the United Kingdom, one of which is in my constituency at RAF St. Athan. It is vital to their success that the agency gets the go-ahead for a new purpose-built hangar at St. Athan, as part of one of the biggest aerospace projects in Wales—the red dragon project. The new hangar must be built before the organisation achieves full trading fund status in 2004 to allow it to compete on the open market with other private sector companies not only providing military service and repair but also offering a commercial service to civilian aircraft when possible. My concern is that if the go-ahead for the red dragon project is not given in time, we will not have the facilities to provide a modern manufacturing plant to compete with other players in the market.

I understand that there was a meeting of the ministerial advisory board a week ago, and the expectation was that the go-ahead would be given for the red dragon project. That would have given permission to raise the money; it will be a private sector initiative to provide a purpose-built hangar that will take 47 fighter jets, and multiples of other aircraft, under one roof. There are hundreds of buildings spread over miles of land, most of which were built during the second world war. We cannot expect people to compete in those circumstances. The decision was not taken and there was enormous dismay and anxiety in my constituency, especially among the

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work force, who have worked so hard to support Government policy. There is anger and uncertainty about the future.

If that hangar is not started by the end of this year, it will not be complete for April 2004, and the organisation that we created under a progressive procurement policy will not be able to compete in the open market; it will have one hand tied behind its back.

Another reason why the Minister should consider this matter carefully is that by unnecessarily delaying the project—if it is delayed; I hope that my hon. Friend the Under–Secretary will say something tonight to convince me and the people who run the Defence Aviation Repair Agency that that is not the decision—there is a danger of playing into the hands of those people within defence procurement, the Ministry of Defence and the military who do not want that solution. They do not like to see so much use of PFI or private partnering, or the creation of new commercial agencies. Naturally, they want to retain their empires and, where they can, build on them.

The British military are the best in the world at fighting wars, but they are not very good at providing the back-up services, stores and support facilities—I speak as an ex-service man—that, frankly, can be provided more efficiently and more cost-effectively in other ways. There are no military benefits from the work reverting back to the military, but there would be a lot of extra resources to go to the front line. Ministers must beware that they do not play into the hands of those who do not want to see agencies such as DARA, or private partnering, succeed. They want to revert to a failed policy.

In many respects, the United States has led the world in new thinking and innovation in logistical support and procurement, but what the Americans say and what they do are often very different. The fact is that we have seen very little shift from military supply and support to private sector innovative provision in the US. The reason is that the lobby on Capitol Hill is so enormous that every time a President—whether Clinton or Bush—had to sign something off, he would not do it. We do not want a parallel situation in this country, caused by a possible delay in a decision that should be taken now to allow the organisation to improve its quality of service, reduce its costs and compete on the open market by 2004.

Red dragon will be one of the biggest aerospace projects in Wales, with an initial investment in excess of £100 million. The Minister may or may not be aware that the decision to delay the go-ahead for the red dragon project could blight that development and that site.

DARA tells me that it has people ready to enter into partnership agreements. Perhaps more importantly, the chief executive of the Welsh Development Agency tells me that he has a number of clients queueing up to move on to the aerospace park. They are ready to make the project work, but they will not wait indefinitely and they may be lost. My right hon. Friend the Minister is aware of the change that is taking place at RAF St. Athan. All the staff are worried and waiting for the decision.

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